[QUOTE=ewmayer;134802]
[url=http://money.cnn.com/2008/05/29/markets/oil_markets_investigation.ap/index.htm]Government investigates oil markets[/url]


It's of course deeply ironic that the CTFC is doing the investigation, since [as the testimony quoted in my post #49 above notes] they were the ones who opened the loophole-big-enough-to-drive-a-supertanker-through in their 2000 changes to the commodities trading rules to begin with, said loophole being the one which "has granted Wall Street banks an exemption from speculative position limits". Perhaps fitting that they should should the ones clesaning up their own mess, but a frank admission of "yeah, we fucked up" would be nice.[/QUOTE]
[URL="http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article4036176.ece"]After US attack over oil price, traders and commodity exchanges fight back[/URL][QUOTE]Phil Flynn, a trader with Alaron Trading in Chicago, said: “When the CFTC spoke to Congress a few weeks ago they said there wasn’t any manipulation in the market and that market dynamics were driving the price. Two weeks later, after pressure from Washington, they have changed their minds. I am concerned that politicians are under such pressure that they will come up with some damaging regulation to try to heal a problem that does not exist.”[/QUOTE]

[URL="http://www.marketwatch.com/news/story/commodities-corner-oils-tense-trading/story.aspx?guid=%7bECDC33C0-2A10-4616-8274-158A8C593379%7d&dist=hplatest&print=true&dist=printTop"]Oil's tense trading scene may sway a move to Dubai[/URL][QUOTE]"If Congress makes some laws that reign in speculation, it's possible that speculators will move out of the U.S. markets and into Dubai," said Phil Flynn, a vice president at Alaron Trading.[/QUOTE][QUOTE] "Market participants who transact business and retain funds within the UAE are able to benefit from the country's zero taxation regimes, which can be of considerable benefit," said Morris.
The DGCX does not place any restrictions on foreign traders and investors, as long as they have complied with the monetary and legal regulations of the UAE, he said. [/QUOTE][URL="http://economictimes.indiatimes.com/Market_News/Crude_offers_arbitrage_opportunity/articleshow/3081663.cms"]Crude futures offer arbitrage opportunity[/URL][QUOTE] NEW DELHI: There may be opportunity for netting more profits in crude oil futures. Indian companies, with an arm in Dubai, can now keep an eye open for arbitrage between Mumbai-based MCX and Dubai Gold and Commodities Exchange (DGCX), the top exchange in the Middle East.

DGCX on Tuesday launched cash-settled West Texas Intermediate light sweet crude oil and Brent crude oil futures contracts. Both contracts appear to be a runaway hit with local punters as DGCX recorded its highest first-day volumes exceeding $370 million.

Crude is also the most popular contract on MCX. More than 29,000 lots of the June contract were traded today, with the gold June contract a distant second at 18,533 lots. Indian companies that are trading on MCX and have a subsidiary that trades on DGCX can use the slight price difference in crude oil contracts on the two exchanges, which is created largely by the dollar-rupee exchange rate, to make risk-free profits at the end of day.

“Both the exchanges will use the same New York price to settle their contracts. So a company can buy the contract where it is relatively underpriced and sell immediately in the other market. The profit will be booked by either the Indian company or its Dubai subsidiary. Unlike normal speculation, arbitrage is a financial transaction which gives immediate profit without involving any risk,’’ said an Indian broker in Dubai.

Meanwhile, DGCX officials told ET, the two contracts contributed more than 45% of the exchange’s daily volume on the first day of trading. “Opening day trade surpassed all previous DGCX records with over 2,800 contracts traded on WTI and Brent, outshining silver futures’ first day volumes of 1,158 contracts in March 2006,’’ they said.

The launch of both WTI and Brent Crude Oil futures on DGCX makes the world’s two most significant crude oil benchmarks available to both regional and international market participants, allowing them to benefit from trading and clearing transactions under the UAE regulatory and taxation regimes, they added.

Malcolm Wall Morris, CEO of DGCX, said: “DGCX’s first day trading volumes further confirm the market’s demand for direct access to the world’s most liquid energy futures contracts. Since inception, DGCX has endeavoured to innovate and create risk management tools. The launch of WTI and Brent crude oil futures suitably illustrates this strategy.”
Each DGCX crude oil futures contract is sized at 1,000 barrels, with the contract price quoted in US dollars and cents per barrel.[/QUOTE]

[quote=only_human;134749]The cost of "holding the bag" has increased accepting this as a relevent factor:

[quote]The Cambridge Energy Research Associates, an industry group, said rent for a deepwater drill ship was now at $600,000 a day, compared with $125,000 four years ago.[/quote][/quote]If your "holding the bag" refers to the oil-in-transit ocean tanker ships I mentioned in post #48, then you want the rents for tanker ships, not drill ships.

Drill ships carry the hardware used in drilling wells in seafloors. When not actually drilling, they carry an oil derrick lying sideways. The derrick is raised vertically while drilling takes place. "Deepwater" simply specifies that they are capable of drilling in water deeper than some XXX meters/feet/fathoms.

Tanker ships are the big long ones with relatively flat tops, used to transport oil from one place (which does not have to be an underwater well) to another.

Anyway, it [I]does[/I] seem that the rent for tankers has also increased dramatically (E.g., [URL]http://www.intertanko.com/templates/Page.aspx?id=18831[/URL]. Check the "VLCC 250' m ts AG–Japan $/day" line -- up about 200% since a year ago.)

- - - - -

P.S. This is my 2000th posting at mersenneforum.org.

[QUOTE=cheesehead;134897]If your "holding the bag" refers to the oil-in-transit ocean tanker ships I mentioned in post #48, then you want the rents for tanker ships, not drill ships.

Drill ships carry the hardware used in drilling wells in seafloors. When not actually drilling, they carry an oil derrick lying sideways. The derrick is raised vertically while drilling takes place. "Deepwater" simply specifies that they are capable of drilling in water deeper than some XXX meters/feet/fathoms.

Tanker ships are the big long ones with relatively flat tops, used to transport oil from one place (which does not have to be an underwater well) to another.

Anyway, it [I]does[/I] seem that the rent for tankers has also increased dramatically (E.g., [URL]http://www.intertanko.com/templates/Page.aspx?id=18831[/URL]. Check the "VLCC 250' m ts AG–Japan $/day" line -- up about 200% since a year ago.)[/QUOTE]

I was a bit uncomfortable using the figure I provided and should have made that clearer rather than just saying "accepting this as a relevant factor." The article I was basing the message upon used it too. [URL="http://www.reuters.com/article/reutersEdge/idUSN2936393120080529"]Big banks rethink oil business expansion plans[/URL]

In the Subprime Mortgage Market Meltdown thread, ewmayer provided information that draws upon the same tanker information source you mention. I am transcribing part of that message here because it is so relevant to the oil thread. It seems that there is a storm of information in recent soap box threads that washes between them relating to government, resources, energy, costs of living, etc. I'm a bit glad that politics is not dominating at the moment.

[QUOTE=ewmayer;134812]One of the [i]Wall Street Examiner[/i] bloggers weighs in on the price of oil, including the skyrocketing tanker rents recently noted in [url=http://mersenneforum.org/showthread.php?t=2313]this thread[/url]. This particular WSE blogger can be a bit odd-sounding because his English ain't the greatest - I quote him as much for the 2 articles [the first by Minyanville's John Mauldin, the 2nd from an oil-industry website] he links to as for his own take:
[url=http://yellowroad.wallstreetexaminer.com/blogs/2008/05/29/ben-bends-but-not-breaks/]So what's up with oil?[/url][QUOTE]Someone noticed first that [URL="http://www.minyanville.com/articles/dow-crude-db-metals-corn-commodities/index/a/17315"]Iran has oil sales declines[/URL]. And apparently so is Russia. The “peak oil” argument will be that they have some problem with producing oil, but it seems it’s wrong. The problem is that Iranian and Russian oil are of lower quality, needing special refineries. And it seems that currently oil production is surpassing the demand, which immediately affects the demand on low-quality products. It’s very easy to mistake falling demand with falling supply. All blogs are arguing about falling output of russian oil for a while, but it seems they all are mistaken.
So Iran is renting tankers and parking them, full of oil it cannot sell. Apparently some hedge funds had decided that someone is trying to corner the market and they jumped in. It’s a complex operation, some swaps are involved, but the net result is that the tanker rent price [URL="http://www.intertanko.com/templates/Page.aspx?id=18831"]jumped 3x this month[/URL]. There is a lot of tankers full of oil parked somewhere far away in hope that the price will go up and away, like Nasdaq in 2000.

John, it’s more interesting than that. It is not just Iran. Today we started checking on how many tankers Iran had, and soon discovered that there is a serious tanker shortage. Lease prices have soared in the past few weeks. It is clear there are a lot of speculators betting that oil is going to rise to $150 or so and are willing to pay very high prices for keeping the oil on the seas waiting for higher prices. It is a speculative boom

It seems that all is simple. More and more of countries cannot afford oil subsidies anymore and consumer energy prices are jumping all around the world, creating almost immediate demand destruction. Add here hedge funds and sovereign wealth funds hoarding years of supply of various base metals and you have the recipe for a perfect storm. It is classic that commodities must fall somewhere in the early recession phase, and it’s quite possible that the bubble finally popped[/QUOTE][/QUOTE]

Also, cheesehead, I wouldn't give up on your 10 day old predictions about oil prices so quickly. I basically agree with them and also wonder if China is deliberately exacerbating the problem by stocking up at this time as a piece of gamesmanship. "Speculative bubble" is being spoken increasingly, and that perception alone may be enough to pierce one. Also I expect some results from the CTFC scrutiny even if it merely discourages a narrow class of investor.

[quote=only_human;134911]The article I was basing the message upon used it too. [URL="http://www.reuters.com/article/reutersEdge/idUSN2936393120080529"]Big banks rethink oil business expansion plans[/URL][/quote]Yes, but it's discussing the whole oil business (including exploration & production), not merely futures trading.

[quote]Also, cheesehead, I wouldn't give up on your 10 day old predictions about oil prices so quickly. I basically agree with them and also wonder if China is deliberately exacerbating the problem by stocking up at this time as a piece of gamesmanship.[/quote]Not lowercase gamesmanship; AFAIK Chinese leaders tend to take a long view. I really think that reducing the possibilities for disruption of their Olympics is an adequate reason for their stocking-up. Their first Olympic Games are [U]very[/U] important to them -- [u]very[/u].

[quote]"Speculative bubble" is being spoken increasingly, and that perception alone may be enough to pierce one. Also I expect some results from the CTFC scrutiny even if it merely discourages a narrow class of investor.[/quote]Exactly ... and those are unrelated to a start-of-August or end-of-Chinese-stockup timing.

[quote]"Speculative bubble" is being spoken increasingly, and that perception alone may be enough to pierce one. Also I expect some results from the CTFC scrutiny even if it merely discourages a narrow class of investor.[/quote][QUOTE=cheesehead;134914]
Exactly ... and those are unrelated to a start-of-August or end-of-Chinese-stockup timing.[/QUOTE]
I don't think they are unrelated because I expect some effect at the end-of-Chinese-stockup and these other factors might affect supply, demand, and elasticity all at once. I think of it like this: a mallet is going to hit the gong at that time. Will the gong be brittle due to other factors? Will it be loud? Investments and transitory locations of the oil worldwide will shuffle around and this all might occur without a ripple being noticed if there wasn't a carillon ringing.

This article specifically names 10 very large crude carriers idling in the Persian Gulf as of early May.

[URL="http://www.bloomberg.com/apps/news?pid=20601109&sid=akLt5fJKQNr8&refer=exclusive"]Iran Doubles Oil Stored in Tankers, Bolstering Rates (Update3)[/URL] Bloomburg.com May 3, 2008
[QUOTE]The 10 tankers hold at least 20 million barrels of oil, equal to about 5 days of the country's output[/QUOTE][QUOTE]Iran's use of ships for storage cut the supply of available supertankers, owned by companies including Hamilton, Bermuda- based Frontline Ltd. and Euronav NV, based in Antwerp, Belgium. The number of double-hull very large crude carriers, or VLCCs, available to rent within the next 30 days dropped to 28 from 56 a month ago, according to Paris-based broker Barry Rogliano Salles.[/QUOTE][QUOTE]The benchmark tanker rental rate for voyages to Asia from the Middle East is $148,000 a day, compared with $44,300 on April 8, according to prices from the London-based Baltic Exchange and a formula from Oslo-based RS Platou Shipbrokers A/S.[/QUOTE][URL="http://www.minyanville.com/articles/dow-crude-db-metals-corn-commodities/index/a/17315"]What's With the Price of Oil?[/URL]
[QUOTE]India's refiners are telling Iran they no longer want their oil, preferring the higher-quality stuff that's readily available in the area. So Iran has to decide whether to send it to China or "repackage" it so that it can end up in the US, while they try to get refiners in India to change their minds. Thus, they're leasing tankers to store the oil they're pumping.[/QUOTE]

Paek Oil Already Here | Sawdust Shortage
 

The [i]Wall Street Examiner[/i] reprinted some of their more insightful reader letters on the oil "bubble" - Here's the link and a few snippets. Lots of material related to Peak Oil [a.k.a. the hypothesized "Hubbert peak"] in there, as well - if the numbers are to be believed, we may have already passed the peak in the past several decades, and only massive deployment of more-expensive drilling technologies to get at the harder-to-reach remnants is obscuring that fact. Note the use of several common 3LA [three letter acronyms] here: SPR =Strategic Petroleum Reserve, FCB = Foreign Central Bank, CUB = Crack-Up Boom [common term for classic commodities boom/bust cycle]. I found the possible implications for the bond markets to be especially interesting - ah, the tangled webs we weave...

BTW [= By The Way], the term "Crack-Up Boom" appears to be due to famed economist [url=http://en.wikipedia.org/wiki/Ludwig_von_Mises]Ludwig Von Mises[/url], one of the most famous members of the so-called [url=http://en.wikipedia.org/wiki/Austrian_economics]Austrian School of Economics[/url]:

[i]"But then, finally, the masses wake up. They become suddenly aware of the fact that inflation is a deliberate policy and will go on endlessly. A breakdown occurs. The crack-up boom appears. Everybody is anxious to swap his money against ‘real’ goods, no matter whether he needs them or not, no matter how much money he has to pay for them. Within a very short time, within a few weeks or even days, the things which were used as money are no longer used as media of exchange."[/i]

[url=http://yellowroad.wallstreetexaminer.com/blogs/2008/05/30/readers-commenting-on-oil/]The Yellow Brick Road | Readers commenting on Oil[/url]
[quote]China has a brand new empty SPR that needs to be filled. China can’t even get enough oil to meet its demand, so their SPR remains empty. I think China will set a floor on global oil prices once it begins filling up. What is better way to rid itself of dollar reserves, than by using dollars to fill up their SPR!

The Middle East is suffering from high inflation because of the dollars decline. Some of the ME producers such as Kuwait and UAE, have already decoupled there currency from the US dollar, and are now accepting other currencies for Oil. While global prices for Oil may decline, I suspect that energy prices for Americans will likely rise, until the Fed, Bush, and Congress make some serious policy changes. As I see it, they are all focused on the credit crunch, and hoping that the declining dollar will increase exports. Unfortunately, they don’t see that we need cheap and abundant energy imports for our economy to function. [u]Take away cheap energy, and it negates any export advantage with a lower dollar[/u].

...

As long as demand for oil in China and India remains strong, the price of Oil will remain high ... Countries like China will move even more aggressively to lock up oil production from exporters. Any US demand destruction will enable China and India to effectively permanently lock out the US by negotiating very long term contracts for Oil. While the US is sleep at the switch, China is very Peak Oil aware and has been arranging long term contracts with exporters.

Just last week, the US congress is pressuring Chevron to abandon Myanmar Oil and gas development because of Myanmar Human rights violations. If Chevron is forced out, China will be there to replace Chevron before the first tool drops.[/quote]


Another shocking report of commodities-market shenanigans, in a rather unexpected area:

[url=http://www.treehugger.com/files/2008/03/housing-slowdown-leads-to-sawdust-shortage.php]Housing Bust Leads to Sawdust Shortage[/url]

My guess is that this will soon be followed by a headline to the effect of "CTFC Blames Chinese termite 'hoarding' for price rise". Chinese termite government has a brand new Strategic Sawdust Reserve that needs filling, see - so they're trying to corner the sawdust markets, to forestall any supply disruptions ahead of the Olympics...

[QUOTE=ewmayer;135007]The [i]Wall Street Examiner[/i] reprinted some of their more insightful reader letters on the oil "bubble" - Here's the link and a few snippets. Lots of material related to Peak Oil [a.k.a. the hypothesized "Hubbert peak"] in there, as well - if the numbers are to be believed, we may have already passed the peak in the past several decades, and only massive deployment of more-expensive drilling technologies to get at the harder-to-reach remnants is obscuring that fact.[/QUOTE]
Peak Oil seems to be the elephant in the room that remains mostly unmentioned. I am struck that the people talking about it over time have become more core personalities and less of the alarmist leading-edge. Personally when I hear about a particular US oil field that is currently untapped because of environmental concerns and might take a few years to get online, I am relieved. We aren't known for restraint and I like knowing that there is still some cheap oil that we can't get our hands on right away. The quantities aren't that high but then it's not the burning of the oil that concerns me most -- I want the petrochemical and other ancillary uses to have a supply in scarce days. The sawdust scarcity represents the idea -- there are uses that depend on the availability of resources supplied by the existence of another market.

[quote=only_human;135020]Personally when I hear about a particular US oil field that is currently untapped because of environmental concerns and might take a few years to get online, I am relieved. We aren't known for restraint and I like knowing that there is still some cheap oil that we can't get our hands on right away.[/quote]Me, too.

I want untapped oil reserves to be more widely recognized as worthy long-term investments than as unexploited resources begging to be consumed as soon as possible.

[quote]The quantities aren't that high but then it's not the burning of the oil that concerns me most -- I want the petrochemical and other ancillary uses to have a supply in scarce days.[/quote]That reminds me ...

Back in the early 1970s, when I was working at the Amoco Production Company's research center in Tulsa, the company held, perhaps once a year, seminars to which employees from all departments were invited for an afternoon. The topics would be current technical developments in the fields of oil exploration and production, and new technology about to pass from research to productive use within our company. We were always advised that it was confidential, not to be disclosed outside the company, but I think the following can be ethically revealed 35 years later :)

During a discussion of the then-newly-being-developed North Slope oil field in Alaska, one of my computing department co-workers proposed from the audience that instead of working to ramp up production as soon as the Trans-Alaska Pipeline was completed, the company and nation should instead consider conserving it for the future when its hydrocarbons [I]might be more valuable as, for example, basic ingredients for food production than as fuel to be burned[/I]. Why not use Middle East oil as fuel, while conserving US oil for a future where it would be much more valuable for other uses than as fuel now? As soon as he finished his last sentence, there was spontaneous applause throughout the audience!

... as an example of how we oil company research workers thought U.S. oil policy should run ... and this from within a decidedly conservative region whose Republican representatives in Congress were staunchly in favor of increasing U.S. domestic oil production.

Soros: High Demand + Speculation = High Oil Prices
 

[URL="http://www.bloomberg.com/apps/news?pid=20601103&sid=aMUH3KgAlIfc&refer=news"]Soros: Fundamentals + Speculation = Record Oil Prices[/URL]
[quote]June 3 (Bloomberg) -- Billionaire investor George Soros said the record oil prices weighing on the economy are the result of a ``bubble'' caused by speculation from index funds and a tight balance between supply and demand.

``The [U]bubble is superimposed on an upward trend in oil prices that has a strong foundation in reality[/U],'' Soros said in testimony before the Senate Committee on Commerce, Science and Transportation. ``The rise in oil prices aggravates the prospects for a recession.''

The committee is holding hearings on potential energy price manipulation. Congressional leaders are pushing the Commodity Futures Trading Commission and other agencies to step up efforts at overseeing the markets for fuels such as gasoline as retail prices are forcing consumers to drive less. The hearings come as oil has retreated from a record $135.09 a barrel on May 22.

The average nationwide pump price for regular gasoline rose to a record $3.978 a gallon yesterday, AAA said. The price was above $4 in 12 states and the District of Columbia.

Gasoline demand in America fell 4.7 percent last week, which included Memorial Day weekend, from a year earlier, according to MasterCard Inc.'s SpendingPulse report. Sales have declined in 16 of the past 19 reports.

Soros laid some of the blame on recent oil price rises on commodity index funds, which only buy oil contracts, helping to push prices higher.

[B]Not `Legitimate'[/B]

``Commodity indexes are not a legitimate asset class,'' he said. He added that raising margin requirements would not affect index trading but could function to limit speculation.

Soros attracted renewed controversy with his 10th book warning that an exploding ``superbubble'' threatens the global financial system, the New York Times reported on April 11. The book bases its conclusions on the idea that individual inclinations and actions generate market fluctuations, rather than the conventional view that markets move toward some kind of equilibrium, the newspaper said.[/quote]

"Not that it's illegal or anything..."
 

[url=http://money.cnn.com/news/newsfeeds/articles/djf500/200806051320DOWJONESDJONLINE000761_FORTUNE5.htm]US Rep Says Probe Uncovers Oil Market Manipulation[/url]
[quote]June 05, 2008: 01:20 PM EST

WASHINGTON -(Dow Jones)- The chairman of a Congressional energy panel said Thursday that oil and products markets were being "manipulated" by the biggest trading houses in the futures markets, though he said a probe hasn't uncovered illegal activity.

Bart Stupak, D-Mich., named Goldman Sachs (GS) and Morgan Stanley (MS) as two of the trading houses. He said the U.S. House Energy Oversight Committee hasn't subpoenaed the banks and is basing its findings on data from the Commodity Futures Trading Commission.

Stupak said initial results of his committee's investigation into skyrocketing oil and product prices had found loopholes in current laws were allowing the biggest traders in the futures market to "game the system." He said the committee would hold a hearing to announce full results of the investigation on June 23.

"As our investigation goes further, we are really starting to unravel quite a web of - I am trying to say collusion, but I wouldn't quite go that far - but you can certainly see manipulation of the price in places we've never seen before," he said.

Asked if the biggest trading houses were Morgan Stanley and Goldman Sachs, Stupak said: "Yes, it's them," again stressing the lack of any evidence of illegal behavior.

"It's not that they are doing anything criminally illegal...they are taking advantage where no one has ever looked before and when someone does take a look, there may be something illegal."

Spokespeople at Goldman Sachs and Morgan Stanley couldn't immediately be reached for comment.[/quote]
BTW, a lot of these big-finance players are big enough that they own actual large storage facilities and pipelines - thus they can play in the futures market without having to worry about "being left holding the oilcan" problem I mentioned a few days ago. For example, one of the assets JPMorgan obtained in the Bear Stearns fire sale was a large Bear-owned oil storage facility. Similarly, there are reports of e.g. large hedge funds buying grain storage facilities to support their speculation in grain futures markets. And of course the really big players [JPM, GS, LEH, etc] are now effectively using U.S. taxpayer money [by way of US treasuries loaned to them at bargain-basement rates by the Fed in exchange for their illiquid securities, which they can then lend or use as collateral for speculative market plays] to run up the prices of these commodities, which makes them money, and hits the taxpayer a second time around, by way of higher food and fuel prices. Not that the game is rigged or anything...